Lump-Sum Distributions at Job Change, Distributions Through 2012

This paper focuses on the decisions that workers make at job change upon receipt of a lump-sum payment from an employment-based retirement plan. The number and level of the lump-sum distributions (LSDs) are estimated, followed by a discussion of what individuals do with these distributions and an analysis of important determinants of the decision to roll over the distributions compared with using the assets for other reasons. These results are derived from recently released data from the U.S. Census Bureau -- The Pension and Retirement Plan Coverage Topical Module 11 of the 2008 Survey of Income and Program Participation (SIPP) -- which includes lump-sum data for individuals through March 2012. This research updates prior studies on LSDs done by the Employee Benefit Research Institute (EBRI). What workers choose to do with their retirement plan assets upon job change can profoundly affect their financial resources in retirement, particularly in the case of younger workers and those with large balances. Since a common option is to take all the assets as a lump-sum distribution, a key question is whether participants roll their retirement assets over to another tax-qualified savings vehicle (such as an IRA), retain it in other savings, or use it for consumption. The average amount of LSDs in 2012 dollars was $20,781, with a median (mid-point) amount of $12,355. In terms of the value at the time of the distributions, the average amount was $15,934 and the median amount was $10,000. Preservation of benefits appears to have improved after 1986, with some evidence it has continued to improve through 2012. Moreover, recipients who did not use their LSD for tax-qualified savings were more likely to use it to improve their financial condition, paying down debt or buying a home, rather than spending it on pure consumption.The PDF for the above title, published in the November 2013 issue of EBRI Notes, also contains the fulltext of another November 2013 EBRI Notes article abstracted on SSRN: “Views on the Value of Voluntary Workplace Benefits: Findings from the 2013 Health and Voluntary Workplace Benefits Survey.”